Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 7, Problem 7DQ
To determine
Income and substitution effect.
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Fill in the marginal utility schedule for each of the goods.
Assume that the price of food is $20, clothing $10, and housing $30. What is marginal utility per $ derived from consumption of the first unit of each of t1 three commodities? If Smith had only $20 to spend, which good(s) would he
Assume that Smith's income is $130/week. If he purchased only the three commodities and faced the price structure in part b, how many units of each . would he demand per week?
The table shows the marginal utility schedules for product X and product Y for a
hypothetical consumer. The price of product X is $6 and the price of product Y is
$2. The income of the consumer is $30.
MU x
MUy
Units of X
Units of Y
72
1
24
66
20
3
60
3
16
4
48
4
12
30
When the consumer purchases the utility-maximizing combination of product X and
product Y, total utility will be.
O76
O 356
96
156
306
86
2.
2.
For normal goodsA) the substitution effect of a price decrease will decrease the quantity of the good demanded while theincome effect of a price decrease will increase the quantity of the good demanded.B) the substitution and income effects of a price decrease will both increase the quantity of the gooddemanded.C) the substitution and income effects of a price decrease will both decrease the quantity of the gooddemanded.D) the substitution effect of a price decrease will increase the quantity of the good demanded while theincome effect of a price decrease will decrease the quantity of the good demanded.
Chapter 7 Solutions
Microeconomics
Ch. 7.1 - Prob. 1QQCh. 7.1 - Prob. 2QQCh. 7.1 - Prob. 3QQCh. 7.1 - Prob. 4QQCh. 7.A - Prob. 1ADQCh. 7.A - Prob. 2ADQCh. 7.A - Prob. 3ADQCh. 7.A - Prob. 1ARQCh. 7.A - Prob. 2ARQCh. 7.A - Prob. 1AP
Ch. 7.A - Prob. 2APCh. 7.A - Prob. 3APCh. 7 - Prob. 1DQCh. 7 - Prob. 2DQCh. 7 - Prob. 3DQCh. 7 - Prob. 4DQCh. 7 - Prob. 5DQCh. 7 - Prob. 6DQCh. 7 - Prob. 7DQCh. 7 - Prob. 8DQCh. 7 - Prob. 9DQCh. 7 - Prob. 10DQCh. 7 - Prob. 1RQCh. 7 - Prob. 2RQCh. 7 - Prob. 3RQCh. 7 - Prob. 4RQCh. 7 - Prob. 5RQCh. 7 - Prob. 1PCh. 7 - Prob. 2PCh. 7 - Prob. 3PCh. 7 - Prob. 4PCh. 7 - Prob. 5PCh. 7 - Prob. 6PCh. 7 - Prob. 7P
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- Recent research confirms that the demand for cigarettes is not only inelastic, but it also indicates that smokers with incomes in the lower half of all incomes respond to a given price increase by reducing their purchases by amounts that are more than four times as large as the purchase reductions made by smokers in the upper half of all incomes. How can the income and substitution effects of a price change help explain this finding?arrow_forwardWhat is the rule relating the ratio of marginal utility to prices of two goods at the optimal choice? Explain why, if this rule does not hold, the choice cannot be utility-maximizingarrow_forwardHari draws an indifference map between two goods A and B, and marks in points to show the combinations of A and B that he would buy if the prices of A and B remained the same but his income increased. Which of the following statements is false O a. The line is called an income consumption curve Ob. The line will always slope upwards to the right if both products are normal goods O C. The line will slope backwards or downwards at income levels where one product is an inferior good D.The line is called the budget linearrow_forward
- Figure 6 presents a consumer's original utility-maximizing market basket of two goods for clothing and food. But following a price change in the market, the consumer's utility-maximizing market basket moved from point A to point B. From this situation, what is the substitution effect (SE) on the quantity of clothing purchased? Clothing (units per week) Ci C2 B Food (units per week) Figure 6 O a. the change from C2 to Cl. Ob. the change from C3 to C1. O c. the change from C3 to C2. O d. the change from Cl to C2arrow_forwardA consumer has the following utility function: Ulx, y) = xy -y, *21 where x and y represents the quantities consumed of goods X and Y. y 20 What will be the substitution and income effects for X and Yassuming that the consumer attempts to maintain the same level of utility achieved before price of Y increased (that is, when price of Y was $1)? SEx= +0.5 IEx = -0.5 SE, = -0.25 IE- = -0.25 SEx= +0.293 IE = -0.293 SEy = -0.414 IE, = +0.414 SEr= +0.25 IE SE, = -0.75 IE, = -0.75 = -0.25 SEx= +0.414 IEx = -0.414 SEy = -0.293 IE, = -0.207 Income = $3 Px= $1, Py= $2arrow_forwardWhen goods are complements, there is a direct relationship between the price of one and the demand for the other. O 1) True O 2) Falsearrow_forward
- Assume a piece of jewelry, and 3 consecutive drops in its price, from ??1 to ??2, from ??2 to ??3 and from ??3 to ??4. Alia’s preferences are such that her demand is relatively elastic between ??1 and ??2, relatively inelastic between ??2 and ??3, and that she perceives that piece of jewelry as a Giffen good between prices ??3 and ??4. How would her priceconsumption curve look like in an indifference curves framework with well-behaved preferences? Clearly label your graph.arrow_forwardSuppose we observe that an individual's demand for good 1 is: 1/(2p,+p2) (where I- income). From this we can conclude that: Goods 1 and 2 are perfect complements O The price of good 1 is higher than the price of good 2 Two answers are correct O Goods 1 and 2 are perfect substitutes Three answers are correct No answer is correct Goods 1 and 2 are normal goods O These goods may be perfect substitutes or perfect complements, it depends upon the utility functionarrow_forwardWhat happens as the elasticity of substitution between two goods increases? The MRS becomes closer to 1. O The optimal quantity demanded for both goods increases. The income elasticity of demand of the good increases. The degree of substitutability between the two goods goes down. O The utility function becomes quasilinear but not homothetic.arrow_forward
- In two commodities world, utility function for a consumer and her income are given respectively. 11 U = x2y2 I= 480 If the price of these goods are Px= 15 and P, = 60 what would be her demand for these two goods * =? and y =? If the price of first good P has increased from 15 to 60. To keep her utility fixed how much does she need to spend for these two goods at least. In other words what should be her minimum income.arrow_forwardTime left Thomas has utility U = min{3C, T) over cookies and tea. Suppose the price of cookies declines by 1 dollar. How much of the change in demand for tea is a substitution effect? In other words, what is (change h7/change gr)? O a. 0 O b. 1/4 O c. 1/3 O d. 2/3 O e. 3/4 O f. 1 Clear my choice Which of the following utility functions does not represent the same preferences as U(x, y) = x2y/2? O a. U(x, y) = xy O b. U(x, y) = In(x) + In(y) O c. U(x, y) = In(x y) O d. U(x, y) = x2 + yl/2 Clear my choice (we haven" this and yo not expect BOANIT 8arrow_forwardConnie has a monthly income of $20.00 that she allocates among two goods: meat (M) and potatoes (P) O 8- Suppose meat costs $10.00 per pound and potatoes $2.00 per pound. Connie's budget line (L) is drawn in the figure to the right 7- 6- Suppose also that her utility function is given by the equation U(M,P) 2M P. What combination of meat and potatoes should she buy to maximize her utility? 5 To maximize utility, Connie should buy pounds of meat and pounds of potatoes. (Enter your responses rounded to two decimal places.) An outbreak of potato rot raises the price of potatoes to $4.00 per pound. What combination of meat and potatoes maximizes Connie's utility now? L. U3 pounds of meat and Connie now maximizes utility by consuming pounds of 1 U, potatoes. (Enter your responses rounded to two decimal places.) 2 3 10 11 12 13 14 15 16 Potatoes When using the multipoint curve drawing tool, hit thearrow_forwardarrow_back_iosSEE MORE QUESTIONSarrow_forward_ios
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